Gareth Jones: Carillion reminds us of the dangers in contracting

01 Feb 2018 Voices

In his leader for February's issue of Charity Finance, Gareth Jones looks at what caused the collapse of Carillion, and finds more evidence that the government has its head in the sand. 

Last month, the collapse of the outsourcing firm Carillion created plenty of headlines. For the charity sector, where the memory of failures such as 4Children and the Lifeline Project is still fresh, it served as another reminder of the need to exert rigorous due diligence over contracts.

Such rigour does not seem to have been present at Carillion. The Times reports the interim chief executive Keith Cochrane as telling investors: “Carillion has become too broad and too complex [with] too many layers of management ... people were too focused on the short term, entering contracts without appropriate risk assessment and often with a high degree of uncertainty around key assumptions.

“We burnt cash through a desire to do the best thing for customers without properly assessing what is right for Carillion from a commercial perspective.”

Any charities for whom this description resonates would be advised to have a serious think about their strategy.

As for the government’s role, the outsourcing giant Serco has become the latest to criticise the system. CEO Rupert Soames was reported by the Telegraph as saying that only the “dumb and the desperate” would bid for “punitive” public contracts, as they are impossible to leave should they become uneconomic. When the likes of Serco are criticising the system, something is surely very wrong.

Unfortunately, there are continuing signs that the government is not listening. Responding to the House of Lords Committee on Charities’ recommendation that “realistic and justifiable core costs are included in contracts”, it said that while sustainability of delivery organisations is “an important factor”, so too is “securing best value for taxpayers’ money”.

It then cited the Social Value Act as requiring commissioners to consider wider social, economic and environmental benefits, which “can include sustainability”. But the Act is widely considered to lack the necessary teeth to drive real change in procurement practice, and “sustainability” in this context seems more likely to refer to environmental than economic.

The Carillion collapse has given traction to those arguing in favour of direct public sector provision. But whatever happens, the current system is likely to be around for the foreseeable future. And while that is the case, charities must continue to exercise enormous care about which contracts they enter into.

Gareth Jones is editor of Charity Finance

 

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